Policies to Correct Imbalances in the Current Account of the Balance of Payments Quiz by Shubhrata Shrestha | Jun 2, 2025 | 0 comments Policies to Correct Imbalances in the Current Account of the Balance of Payments Quiz 1. Which of the following is an expenditure-switching policy? A) Increasing interest rates B) Reducing government spending C) Currency depreciation D) Increasing income tax None 2. A country trying to reduce a current account deficit may use which fiscal measure? A) Increase in subsidies to exporters B) Lowering interest rates C) Increasing income taxes D) Selling foreign exchange reserves None 3. What is one drawback of protectionist policies? A) They increase foreign investment B) They reduce consumer choice C) They boost export competitiveness long-term D) They lead to a trade surplus None 4. What does the J-Curve Effect imply? A) Deficits always worsen with time B) Exports rise and imports fall immediately C) Current account worsens before improving after depreciation D) Tariffs are ineffective None 5. Supply-side policies help improve the current account by: A) Cutting government budgets B) Reducing interest rates C) Making domestic industries more competitive D) Reducing currency volatility None 6. Which policy tool is best suited for long-term current account improvement? A) Import tariffs B) Currency depreciation C) Supply-side reforms D) Raising interest rates None 7. If the price elasticity of exports and imports is low, what is likely after a currency depreciation? A) The current account will improve instantly B) There will be no effect on trade balance C) Imports will increase D) Inflation will drop None 8. Which is a valid argument in favor of protectionism? A) Reduces inflation B) Encourages technological innovation C) Protects infant industries D) Prevents monopolies None 9. Higher interest rates may impact the current account by: A) Increasing import demand B) Causing currency depreciation C) Attracting capital inflows and appreciating currency D) Reducing government debt None 10. What does the Marshall-Lerner condition state? A) Interest rates must be high to reduce deficits B) A trade deficit will worsen if inflation is high C) Currency depreciation improves current account only if elasticities > 1 D) Exchange rates do not impact trade None Time's up Submit a Comment Cancel replyYour email address will not be published. Required fields are marked *Comment * Name * Email * Website Save my name, email, and website in this browser for the next time I comment. Δ
